Other Things Equal, Diversification Is Most Effective When

question 65

Multiple Choice

Other things equal, diversification is most effective when

• A) securities' returns are uncorrelated.
• B) securities' returns are positively correlated.
• C) securities' returns are high.
• D) securities' returns are negatively correlated.
• E) securities' returns are positively correlated and high.

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Definitions:

Permanent Shortage

A sustained situation where the demand for a good or service persistently exceeds its supply, often due to fixed or limited quantities.

Price System

Mechanism that allocates resources, goods, and services based on supply and demand.

Price Ceilings

Price ceilings are regulatory measures that set a maximum price that can be charged for certain goods or services, with the goal of ensuring affordability.

Price Floors

Minimum prices set by the government for certain goods and services, aimed at preventing prices from dropping too low.